In less than a year data will start to flow under a new scheme for countries to share information automatically across borders, to help each other collect taxes from their taxpayers and fight financial crimes and abuses. The scheme is the Common Reporting Standard (CRS) which was set up by the OECD, a club dominated by rich countries. The scheme will start to deliver global automatic exchange of information from 2017.

We have generally welcomed this development, but we have also warned about many loopholes, especially ones preventing access to necessary information by developing countries, which are the most vulnerable to state looting and offshore hiding.

The CRS basically works like the dating app Tinder (or perhaps LinkedIn): exchanges of information are only possible between countries that have ‘liked’ each other. The OECD recently published the lists of matches, and among other things we observed that Switzerland, that long-standing rogue in global transparency efforts, only had agreements with EU countries.*

But a week after we wrote our blog on the CRS’ dating system, Switzerland signed agreements with other developing countries including Argentina, Mexico and Uruguay to automatically exchange information. Of course, Switzerland’s motivation wasn’t necessarily transparency: the aim may have been to ensure that the Swiss financial industry will get something:

But the Swiss have, inevitably, tweaked the rules unilaterally, in a characteristic ‘screw-you’ gesture to the OECD and the community of responsible nations. Even though Switzerland appears in the OECD webpage as promising to exchange information in 2018, at least with these developing countries, it has now said that it will only start collecting information in 2018, while exchanges will only start in 2019.

Second, tax dodgers will have extra time to rearrange their affairs, especially to exploit a loophole for some “pre-existing” bank accounts, for which no reporting of any information is to happen at all. Bear in mind that for most Early Adopters (that is, countries exchanging information from 2017) an account was considered pre-existing if it was opened before December 31st 2015 (though they announced this in 2014, so many “new” accounts actually benefited from this “pre-existing” status). In the case of Switzerland, accounts will still be considered pre-existing if opened before December 31st 2017! The same applies to currently existing accounts that will have plenty of time to be closed, without any information being disclosed (the CRS doesn’t require much information on closed accounts, anyway).

This makes little sense, especially for Switzerland

If a developing country like Argentina can exchange information with other countries by 2017, why can’t a far more sophisticated country like Switzerland do the same? Not only that, but it is asking for two more years. It could comply, but its banking industry simply doesn’t want to.

In fact, Argentina (like most countries) only found out about the CRS’ details between February and July of 2014, and still managed to get their legislation ready. Switzerland found out even earlier, since it was responsible for designing the CRS:

This also allowed Switzerland to impose more obstacles, such as requiring full reciprocity** and thus preventing many low income developing countries from joining the CRS (because they don’t have the capacity to provide information, and don’t generally have much useful information to provide – who would stash their hidden wealth in Nigeria for safekeeping?). But developing countries would have benefitted enormously from receiving information from financial centres like Switzerland.

Switzerland also required the principle of “speciality”, which pretty much means that information cannot be used to tackle corruption or money laundering, but only to collect more taxes. It is perfidious behaviour by the Swiss, as we’ve long come to expect.

Finally, the suspension of AEOI until 2019 makes no sense because Switzerland already has the information it needs to exchange. Most of the burden of AEOI lies on financial institutions that need to collect and report information on all of their account holders. Authorities simply aggregate this information, sort it by country of residence, and exchange it.***

* Switzerland sends almost the same information to the U.S., as required by U.S. domestic law called FATCA.

** While Switzerland required full reciprocity from other countries in the CRS, it signed a non-reciprocal agreement with the U.S. where Swiss banks send information to the U.S. but Switzerland receives no information in return. Most other countries signed partially-reciprocal agreements, receiving at least some information from the U.S.

***It was actually banks in most countries who asked countries to establish the “wider approach”, which would allow them to look at all their account holders at once (even if they are not resident in a country participating in the CRS), collect their information to determine their tax residence, and report this information to the authorities. Otherwise (in the “narrow approach”), banks would have to collect information only about account holders from countries with which Switzerland is exchanging information (say the U.S. and EU), and then re-do the whole due diligence again every time Switzerland signs an agreement with a new country, say Argentina. If banks had to do this whole due diligence every time, it would be extremely costly.

Four Aspects for Government:
1. LVT, adds to the national income as do other taxation systems, but it replaces them.
2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all.
3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).

Six Aspects Affecting Land Owners:
5. LVT is progressive–owners of the most potentially productive sites pay the most tax.
6. The land owner pays his LVT regardless of how his site is used. A large proportion of the ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).
7. LVT stops speculation in land prices and the withholding of land from proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below).

Three Aspects Regarding Communities:
11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.

Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks– LVT is a natural system of national income-gathering.
15. Bribery and corruption on information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
16. The improved use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs. Then earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly introduced it will eliminate poverty and improve business ethics.

Although TJN has always strongly supported LVT, and generally agrees with the analysis above – our proviso is that LVT should be just one part of a comprehensive tax system. Different taxes serve different purposes and we need a judicious selection.

Dear authors. I really apreceate your work. But I beleave that your knowledge of Switzerland is not very sofisticated.
1. I agree do have a banking secrecy and it is also used to avoid tax. BUT: Swiss bank DO know who is the account holder since maybe 10 years. US-Dellaware and others dont!
2. Switzerland is probably the most democratic country on earth. So you cannot just come and sign a contract with our president and things are done. We have a group of 7 at the top. And they have o ask 2 chambers (like parliament and senate in US). And if a party wants it can obligate a Swiss wide votation. Furthermore we’ve delegated a lot to our cantons, which make things very complicated, especially when it comes to taxes. All this takes more time than in other countries.
3. Switzerland was blackmailed from the US to FATCA. Twice. Thats why we have no bilateral information flow here.

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We are an independent international network launched in 2003. We conduct high-level research, analysis and advocacy on international tax; on the international aspects of financial regulation; on the role of tax in society; and on the impacts of tax evasion, tax avoidance, tax 'competition' and tax havens. We seek to create understanding and debate, and to promote reform, especially in poorer countries. We are not aligned to any political party.